Why is ONDC entering financial services, and which services will be included?
If you’re unfamiliar with ONDC, we recommend starting with this article.
Financial services beyond banking and payments are significantly underdeveloped in India. While the wealthiest 100 million people are well-served, the remaining 1.3 billion are often overlooked.
There are two main reasons for this:
First, financial services are often provided through manual or “phygital” methods, which increases customer acquisition costs. These higher costs mean that companies need larger transaction sizes to make it worthwhile to serve a customer, leaving out the less affluent majority.
Second, the lack of standard APIs and streamlined processes makes it difficult for product manufacturers and distributors to integrate efficiently. Although digital transactions are growing rapidly in India, thanks to affordable smartphones and data, the unequal power dynamics between larger and smaller players in the market lead to rigid practices. These practices not only drive up integration costs but also push smaller, innovative players to the sidelines in favour of established, larger ones.
This issue affects credit, investments, and insurance. To address this, the goal is to use technology to make financial services more accessible to everyone in India. The ONDC plans to create networks that enable the low-cost distribution of financial products, enforce fair practices in the marketplace, and foster innovation in financial products.
Financial Service Categories covered under ONDC and their Use Cases:
1. Credit Solutions
a. Individuals: Unsecured Personal Loans
- Instant loan approvals during the shopping process
- Tailored credit offers based on transaction history
b. Sole Proprietors: GST data-powered loans
- Leveraging GST data for more accurate credit assessment
- Quick working capital solutions for small businesses
c. MSME: Seller Financing
- Supply chain financing based on ONDC sales data
- Inventory financing to help sellers meet demand
2. Insurance Products:
a. Motor Insurance
- Instant quotes for vehicle purchases
- Seamless integration with the vehicle registration process
b. Health Insurance
- Personalized health coverage recommendations
- Easy policy comparisons and purchases
c. Marine Insurance
- Automated coverage for high-value shipments
- Real-time risk assessment for logistics
3. Investment Opportunities
a. Liquid Funds
- Easy parking of excess funds from sales (for sellers)
- Short-term investment options for buyers
b. Equity Index Funds
- Micro-investing options at checkout
- Portfolio diversification based on purchase patterns
4. Additional Financial Products
a. Gift Cards
- Integrated gift card purchases and redemptions
- Personalized gift recommendations based on the recipient’s ONDC activity
b. Liability Accounts
- Seamless account opening process
- Specialized accounts for ONDC sellers with tailored benefits
Role of Financial Players on the ONDC Network
Buyer App: Financial institutions acting as Buyer Apps serve as a front-facing service provider, selling products directly to end customers, much like a Loan Service Provider (LSP).
Seller App: Institutions functioning as Seller Apps are essentially lenders that provide their services on Buyer Apps. To offer services on ONDC-based platforms, financial institutions must register as Seller Apps.
Technology Service Provider (TSP): These are the entities that provide the backend technology infrastructure, supporting both Buyer and Seller Apps.
Reconciliation Service Framework (RSF): These players ensure seamless payment settlements within the platform, adhering to ONDC’s regulatory guidelines.
Financial Players Live on the ONDC network
Several prominent fintech and financial institutions are actively integrating with the government-backed Open Network for Digital Commerce (ONDC).
Leading names such as Aditya Birla Finance, Karnataka Bank, Tata Capital, Canara Bank, and Bajaj Finserv are at various stages of this integration, signalling a significant shift in the digital commerce landscape.
On the lending front, DMI Finance is already participating, with Easypay representing the buyer side in the initial cohort. Additionally, the first cohort of buyer apps includes Easypay, PayNearby, Rapidor, and Tata Digital, alongside lenders like DMI Finance, Aditya Birla Finance, and Karnataka Bank.
In the insurance sector, a cohort of six participants is gearing up for their first trial transactions, focusing on motor, health, and marine insurance. This group includes Insurance Dekho, Policy Bazaar, and Clinic 360 as buyers, while Bajaj Allianz, Aditya Birla Health, and Kotak General Insurance are on the seller side.
Summary:
The integration of financial services into the Open Network for Digital Commerce (ONDC) marks a transformative step in democratizing access to financial products across India. By addressing the challenges of high customer acquisition costs and inefficient integration processes, ONDC is paving the way for more inclusive financial solutions. With prominent players like Aditya Birla Finance, Karnataka Bank, and Bajaj Finserv already on board, the network is set to offer a diverse range of credit, insurance, and investment opportunities. This initiative not only promises to reduce costs and foster innovation but also ensures that financial services reach the vastly underserved population, creating a more equitable financial ecosystem.
ONDC and Pirimid
Pirimid simplifies the process of joining the ONDC network, enabling you to get your business live quickly and efficiently. Our team of experts will be with you every step of the way in tech and non-tech, ensuring a seamless and stress-free integration.
Here’s how you can get started with us:
1. Explore Our ONDC Solutions: Click on this link 👉 https://pirimidtech.com/solutions/pirimid-ondc/ & discover Pirimid ONDC Offerings to see how we can help your business thrive on the ONDC platform.
2. Get in Touch: Reach out to us, and our team will connect with you within 24 business hours to guide you through the onboarding process.